China is planning a major overhaul of its steel industry as it tries to meet domestic demand and cut pollution.
China will force hundreds of steel firms to merge or close
By 2010, China wants to have two major domestic firms with an annual capacity of 30 million tonnes each, with a limited number of smaller producers.
Currently China has more than 800 steel firms, with only the biggest, Baosteel, coming close to the required output.
China plans to force mergers and closures after supply outstripped demand and prompted a price slump.
The country is the world's biggest producer and consumer of steel and the dip in demand has reverberated around global markets.
Firms including Mittal Steel, Arcelor and Thyssenkrupp have all announced production cuts.
Too many players
Steel mills sprung up to meet a surge in demand as China's economy boomed.
Since those heady days, growth has been reined in to stop the economy from overheating and this had led to a glut of steel on the domestic market.
Prices have dropped by as much as 30% as a result, and planning agency the National Development and Reform Commission has decided it is time to take action.
The government "will encourage some big companies to compete with international mills," said Luo Bingsheng, vice chairman of the China Iron and Steel Association.
By 2020, some 10 firms are expected to account for 70% of domestic production.
At the same time, the commission will raise the minimum investment required for a new mill and shut those that burn too much coal or are based in city centres.
China also mentioned plans to limit the role of foreign companies in its home market and aims to prevent them from controlling any single mill.
A number of firms including France's Arcelor and South Korea's Posco have been considering buying into a Chinese firm.